Advantages of offshoring to India

September 23, 2016

India, with the second highest population in the world, has all sorts of skill sets to offer to today’s ever-growing corporate world. From, data analysis to market research; transcription to tech support, the immense Indian workforce has it all. Perhaps, it is because of these salient qualities, this largely diverse country has to offer, that India has now become a leader in the international offshore market.

Formally, offshoring is defined as the relocation of a business process from one country to another. These business processes can include operational processes like, manufacturing or support processes like accounting. Usually, offshoring refers to a corporate company business, although, state governments can at times, employ it as well. These days, offshoring is primarily associated with the setting up of administrative and technical services teams, supporting the company’s global and domestic operations from outside the native country.

Why offshore?

Offshoring in itself, can prove to be really beneficial to a company. It can have a lot of advantages; whether you are looking for privacy, asset protection, tax saving (varies with the jurisdiction), confidentiality or simply, to be able to expand your business beyond the home country.

Offshoring your business out to other countries with a comparatively lower economy can be rather advantageous to both, the source and the destination country as well. Some people believe that, since offshoring certain jobs out can lead to an increase in unemployment of the source country, and hence might affect the economy adversely. One of Mckinsey Global Institute’s research and analysis has offered a different perspective: Offshoring is as beneficial to the native country as it to the destination country.

The most conspicuous advantage of offshoring are seen by the businesses and the destination countries. Relatively lower wages in the foreign countries lead to significant savings, and quite often, to better work quality as well. For instance, usually, a software developer in the US, can cost up to $60 per hour whereas, the same task can be done in India at a much cheaper price of $10-$15 an hour. This and other advantages as well can directly transform to provide a net influence of around 50% rise in the profits of the business.

The destination countries as well see their part of profit from this as, it leads to increased job opportunities and investment via offshoring. For instance, India, profits a net benefit of at least 33 cents for every one dollar of spend offshored to its country.

 

Besides the financial advantages, offshoring has a variety of other advantages as well:

 

  • Higher productivity

While the people in the native country of the business are sleeping, their offshore team, working in a different time zone all together, are working. Hence, some part of your business is always working and sees no stationary point. This might cause a barrier because of lack of communication because of the difference in the working hours, but this is a small price one might have to pay for the overall growth of the business as a whole. Apart from this, offshoring your business to a different country, allows you to make use of the special talent pool of that country as well as yours own (which in some cases, might turn out to be better in comparison). It is often seen that some specific countries or regions develop a much better environment for a specific type of industry(s). This directly translates to a better availability of personnel trained or skilled in that particular field as compared to the other areas. For instance, countries like India and Philippines have a huge pool of college educated youth, fluent in English; as well as an availability of a full-fledged training infrastructure; that makes it favourable for business process offshoring. This is one of the reasons why many companies choose to offshore their certain business functions (like, call centres etc.) to these locations.

 

  • Favourable government policies

The government policies of the destination play a very crucial role in the smooth setup and running of an offshore team process and the profit gained from it. Often, a country’s policies can be very stringent about certain things and hence, lead to a turbulent road for the business. There are governments that even provide with special exemptions and other incentives based advantages to the companies that invest in their economy. Usually, this means; exemption from certain taxes and loans at a cheap rate to help improve the business and ultimately, the country’s economy.

 

Why offshore to India?

According to a recent research survey, around 80% of the US and European firms preferred India as their number one destination to set up an offshore team for their business. The National Association of Software & Service Companies (NASSCOM) has also found that about half the companies listed in the Fortune 500 look at India as the top priority in terms of outsourcing their software development operations. Even though the countries like Mexico, Philippines, China and Ireland have been competing for the prize as well, India has been able to outmanoeuvre all of them so far. This feat can be considered a combined effort of a number of factors.

 

  • India has the largest professional and technical pool in the world


When it comes down to having a vast pool of technically sound and skilled human resource, India is second to none. The country has a huge population of over 1.25 billion people and about 3 million graduates get added to the country’s workforce every year. India also boasts being the largest English speaking nation in the world. Fascinatingly, it is even larger than both the US and UK put together. But India is just not about the raw numbers; it provides a quality talent in all fields as well. A large number of innovative Indian minds attract a huge amount of foreign investments every year.

 

  • Lower pricing options

One of the biggest reasons why India can be the perfect destination for setting up an offshore team is the fact that India offers a flexible pricing option. The companies can achieve some significant amount of cost saving by offshoring their business operations to India. This is mainly because of the huge gap between the personnel costs that exist in India and that of the developed countries. Like mentioned earlier, a good developer in the U.S. can cost up to $60 per hour, whereas, the same job can be done by an equally capable Indian at a much less price of around $15 an hour. This difference in cost can help companies extract a much larger amount of profit.

 

  • Availability of quality infrastructure and technology

Today’s modern India, provides all kinds of state of the art telecom services, internet facilities and cellular networks in all major cities. The clients are provided with the finest quality of the required software and customized solutions according to their specific needs such as system migration, legacy system maintenance, e-commerce, system integration, business process re-engineering, and so on.  The offshoring companies also have the option of maintaining an uninterrupted communication channel with the clients by the means of high speed bandwidth provided.

 

  • A stable government

India’s offshoring industry is supported by rather stable government policies on the telecom, economy, taxation, power, industrial parks, GDP growth, and special zones, which have been really supportive in improving the infrastructure as well as the communications systems of the nation. For instance, IT is considered as one of the top priority industries        of the country, and thus, the government has framed the policies accordingly to obtain the maximum profit from the IT offshoring business in India.

 

  • Availability of consistent high quality services

Even though the fact that the lower cost factor in India plays a big role in attracting a lot of offshore operations, the quality of work that the country provides has also enabled the top companies to set up a team in the country. In its Annual Offshore Outsourcing Conference, The National Outsourcing Association (NOA) talked about the common trend observed among the International companies who look at India as their first choice for offshoring/outsourcing their business. "Cost reduction was only part of the reason that companies were considering offshore outsourcing, there were benefits to be had in time-to-market and quality, leading to an adage that companies initially chose India to save costs but stayed for the speed and quality!”

 

It is because of these aforementioned features that this subcontinent has to offer that, India is considered as the favourite offshoring destination of the world. It has gained a global trust with the big players such as Hewlett-Packard, Cisco and Oracle preferring India as they are confident of having access low costs, superior talents, quality results etc. Mr. Elfrink, from the Cisco systems, emphasized on this by saying "We believe that India is the hub of the world where the ICT sector is concerned." The country also holds about 65% of the world’s total offshore BPO market, hence making India the, the dominant leader in providing offshore servies.

 

September 23, 2016

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